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What Is the Mechanism of a ‘Decentralized Liquidator’ in a Lending Protocol?

An external bot that repays under-collateralized debt and claims the collateral at a discount, ensuring rapid, market-driven debt resolution.
Greeks.Live12.11.25

What Is the Mechanism of a ‘Decentralized Liquidator’ in a Lending Protocol?

A decentralized liquidator is an external bot or user who monitors the blockchain for under-collateralized debt positions (CDPs). When a CDP's collateralization ratio falls below the required threshold, the liquidator calls the protocol's liquidation function, repaying a portion of the debt and taking the collateral at a discount (the liquidation penalty) as profit.

This competitive process ensures rapid, market-driven debt resolution.

What Dispute Resolution Mechanisms Are Effective in a Decentralized Syndicated Loan Consortium?
What Types of Disputes Are Most Suitable for On-Chain Resolution?
What Is a ‘Liquidation Penalty’ and Why Is It Imposed?
What Is the Role of the ‘Liquidation Penalty’ in Maintaining the Health of a Collateralized Debt Position (CDP)?

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